Are New Platforms Threatening The Hegemony Of Bitcoin And Ethereum?

Bitcoin and Ethereum dominate, but they aren’t infallible. Recent events have exposed their weaknesses when it comes to scalability, Bitcoin transactions have been plagued by long confirmation times, which are now intimately felt as Bitcoin is reaching new highs, and Ethereum users fear a looming network congestion considering the large number of projects built on top of the platform.

The CryptoKitties craze showed that a spike in just one app can be enough to cause bottlenecks in the network. As a result, we are starting to witness cracks in the dominance of a few networks.

A bitcoin automated teller machine (ATM) stands at the Coin Trader bitcoin retail store in Tokyo, Japan, on Wednesday, Aug. 30, 2017. Both Bitcoin and Ethereum have seen a major increases in their price and market cap, but how sustainable is their market dominance?

I recently spoke with Daria Arefieva from CryptoFriends – a company that specializes in high‑end blockchain‑related events – at a blockchain conference in Singapore. According to Arefieva, we are witnessing the rise of new platforms as a result of ongoing challenges the big players are facing.

As Blockchain and cryptocurrencies continue to develop, we will see many different types of platforms — not just Bitcoin or Ethereum but hundreds if not thousands of others. As we have seen in previous technology cycles, it is not always the first or second that become the default tech of choice. As the months and years go by and the technology matures, we will begin to see how crypto standards will work and be associated with more of our day-to-day activities.

Old players, new landscape

Financial services have already felt the impact of blockchain, but other industries should experience the disruption as soon as blockchain adoption widens. At the center of this are the two top blockchains, Bitcoin and Ethereum.

While it has been common to lump these two together as cryptocurrencies, it’s important to make distinctions as to how these two blockchains are dictating crypto activities. Bitcoin was designed primarily as a digital currency while Ethereum was built to be a development platform.

Several other blockchain platforms are already challenging their dominance in their respective functions. Litecoin and Bitcoin Cash have both risen in price during this latest bull run of cryptocurrencies showing that Bitcoin isn’t the only digital currency that could draw demand from investors. Smart contract platforms like NEO and EOS are also challenging Ethereum. NEO, in particular, is aspiring to offer better smart contracts compared to what Ethereum currently offers.

With that, businesses and developers considering adopting blockchain may have to look for alternatives if they want speed and scale. Financial blockchain platforms such as Ripple and Stellar both promise faster confirmation times compared to Bitcoin and Ethereum. Smart contract platform Qtum, for instance, boasts a faster consensus algorithm compared to Ethereum while Jelurida-developed Ardor offers scalability and customizability through its child chain technology.

The Problem of Scale

One may recall that before Bitcoin’s meteoric rise in price to nearly $20,000, it was under threat of a hard fork. The entire hard fork controversy revolved around the debate concerning the way to scale the network. The fork was supposed to double Bitcoin’s block size in order for the network to accommodate more transactions. The fork didn’t happen, and the scale issue of Bitcoin remains. Until today, it’s common to have more than 100,000 unconfirmed transactions pending on the network.

Ethereum is also having some issues regarding scale. Even founder Vitalik Buterin acknowledged scalability issues.

Scalability sucks; the blockchain design fundamentally relies on bottlenecks where individual nodes must process every single transaction in the entire network.

Vitalik Buterin, co-founder of Ethereum Foundation and Bitcoin Magazine, speaks during the TechCrunch Disrupt 2017 in San Francisco, California, U.S., on Monday, Sept. 18, 2017. TechCrunch Disrupt, Etheruem is currently the 2nd largest coin by market cap and the authority in terms of building blockchain apps, but will Ethereum keep it’s crown forever? Photographer: David Paul Morris/Bloomberg

Speed greatly affects application usability. Given the impatience of today’s users, building on slow and laggy technology could grossly affect services’ performance and limit future growth. The CryptoKitties episode simply highlighted this issue.

Ethereum’s developers are working on ways to improve the platform’s scalability, including a shift from proof of work (PoW) to proof of stake (PoS) as means of validating transactions and achieving consensus. PoS is supposedly more cost effective, and Ethereum’s development team is already working towards implementing it.